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Tuesday, February 21, 2012

On
February 9, 2012 the Obama Administration and forty-nine state prosecutors
struck a $25 billion agreement with the nation’s five largest mortgage
servicers to address mortgage loan servicing and foreclosure abuses.The announcement presages potential relief
for some Americans whose mortgages are now underwater or are facing
foreclosure. Under the Agreement,
forty-nine states (the lone hold-out is Oklahoma) agreed not to pursue civil
charges against the banks related these types of issues. In return for immunity from civil charges from
the states, five major banks—Bank of America, JPMorgan Chase, Wells Fargo,
Citigroup, and Ally Financial—will reduce loans for nearly one million
households.Issues regarding criminal
liability have yet to be dealt with.

Background

The
settlement follows ten months of negotiations between the five banks and a
coalition of state attorneys general, and the Department of Justice (DOJ),
Treasury, and Housing and Urban Development.
The investigation was initiated in October 2010 after the discovery of
widespread use of “robo-signing” to speed up the foreclosure process, whereby
employees signed, or used fake signatures on, thousands of affidavits they had
not read.

Accountability

Hopefully
this will bring much needed relief to the thousands of homeowners struggling to
pay their mortgages or fend of foreclosure.

The
agreement with the five banks does not prevent the state or federal authorities
from taking criminal enforcement actions related to the foreclosure issues
addressed by the agreement or other troubling conduct, like the issues
surrounding securitization of mortgage backed securities that were at the heart
of the financial crisis.

Paul
Krugman, economist and columnist for TheNew York Times, thinks that not
enough is being done. In a recent interview,
Krugman argued that "[i]t's hard for me to believe there were no crimes,
given the scale of [the financial crisis], given how many corners were being
cut, some people must have violated laws. I think people should be in jail."

Surprisingly,
the raw numbers seem to back Krugman. Federal
prosecution of financial fraud fell to a twenty-year low in 2011, according to a
report issued in November.

Make
no mistake, the companies engaged in robo-signing may face criminal liability
for fraud. In simple terms, employees of
these banks signed thousands of affidavits authorizing foreclosures across the
country, without actually having reviewed the loan documents, as the law
requires. A person signing an affidavit
is swearing under oath that the statements in the document are true. Knowingly filing a false affidavit is perjury, punishable
by fine, a five-year prison sentence, or both. Criminal liability does not end with the
mid-level employees signing these documents.
Higher-level employers could be liable for the felony of suborning
perjury, the crime of getting others to perjure.

Some
state attorney generals have taken action.
On February 6, 2012, a Missouri
grand jury indicted on forgery charges DocX, one of the largest companies
that provided home foreclosure services to lenders. The employee named in the indictment is Ms.
Brown. Under Missouri law, if convicted
she could face up to seven years in prison for each forgery count and DocX
could be fined up to $10,000 for each forgery conviction. The Missouri indictment could also impact
homeowners. According to Missouri’s Attorney
General, housing documents found to be tainted by fraudulent signatures
would be void.

Missouri’s
indictment comes after Nevada became the first state to take action in November. The Nevada attorney general indicted two
midlevel staffers at a mortgage document company, Lender Processing Services. The case is still making its way through
court.

It
remains to be seen if other states will follow the lead of Arizona and
Missouri. No doubt, the scrutiny on
agencies with the lead in investigating the financial industry will continue to
increase.